The Radical Transformation Of U.S. Oil Imports

Last week we discussed how flows from Saudi Arabia into the U.S. were about to be surpassed by Iraq for the first time since 1985 (teeing up Back to the Future / Carly Simon / Tears for Fears references). With October closing out, this has now become fact. Such a reversal highlights Saudi Arabia’s ongoing willingness to give up market share…even if other cartel members are not.

While Saudi’s drop has been stark, Kuwaiti deliveries have shown a gradual descent, highlighted by the 4-month moving average in the chart below. Imports in October were at 122,000 bpd, about two-thirds the average volume through the first nine months of the year.

Kuwaiti crude heads to both the Gulf and West Coasts. Even though key recipients of Kuwaiti crude on the West Coast – Valero’s Benicia and Wilmington refineries – have continued to receive deliveries, there has not been a single delivery to the Gulf Coast in October for the first month on our records.

While on the topic of declining imports, a reader asked earlier in the week about heavy crude deliveries to the U.S. Gulf (PADD 3), and whether we were seeing an uptick or not. We can see in our ClipperData below that waterborne imports of heavy crude (crude that has an API gravity of 23 degrees or less) are gradually drifting lower.

Heavy imports to the U.S. Gulf so far this year are averaging 1.28 million barrels per day. That is 178,000 bpd less than last year, and 246,000 bpd below 2015’s level.

The vast majority of heavy waterborne crude imports into the U.S. Gulf are from Central America (think: Mexico, 42 percent this year) and South America (think: Venezuela, at 32 percent). Barrels of mostly Castilla from Colombia and various Brazilian grades account for another 19 percent. The remaining 7 percent are bits and bobs from anywhere from Guatemala to Norway to Chad.

But this drop isn’t the whole story; lower waterborne deliveries are being offset by rising Canadian pipeline flows.

U.S. imports of Canadian crude, which are predominantly heavy barrels and delivered by pipe, have continued to rise (only about 100,000 bpd is waterborne). According to the EIA, imports are averaging 3.43 million barrels per day through the first eight months of the year, which is 199,000 bpd higher than last year. Canadian imports this year are 74 percent higher than the sub-2 million bpd level they were in 2010.

While U.S. Gulf refiners have adjusted their slates towards lighter crude to take advantage of increasingly available cheap domestic light crude barrels, the two charts above illustrate the ongoing appetite for heavy crude continues apace.

Another reader asked a question earlier in the week relating to the East Coast’s appetite for WAF and NAF crude (West African and North African), and whether is was primarily light crude. Our ClipperData below illustrate that just over three-quarters of WAF / NAF barrels that have been delivered to the East Coast this year are light (API of 33 or higher).

Refiners were using considerably higher volumes of domestic barrels (crude by rail) back in 2014/15, which is reflected in vastly lower imports at that time (hark, below). But as crude by rail has been priced out of the market amid lower oil prices (transportation costs = ~$9 – 10/bbl), and as DAPL has been built to take Bakken barrels to the Gulf Coast instead, it is more economical for East Coast refiners to pull in Atlantic Basin barrels than Bakken.